It makes economic sense for the corporation to borrow overseas, which is unlikely to become problematic as Gazprom has a strong supply of liquidity and there is an opportunity to obtain loans issued by Russian banks.

15:30, 9 August 2018

Open source

Russia’s Gazprom is restricted in its opportunities to borrow on the international market as the result of the company’s assets being frozen according to the ruling in the lawsuit against Naftogaz-Ukraine. Reuters has citing its own sources familiar with the situation has informed about this, 112.ua reports.

One of the sources pointed out that Gazprom's borrowing program has been halted due to a risk of the money transferred to the Russian consortium becoming frozen. He added that one of the banks has decided to halt the credit deal until the situation is clear. However, the source did not name the bank itself.

Another of the agency's interviewees suggested that the ruling produced by the London court is likely to have scared the bankers that had worked with Gazprom in the past.

“As far as I understand, this will have an impact on any transactions made by foreign banks that are made via London. However, the compliance departments of banks registered in other jurisdictions may choose to take a careful position and block transactions even if no direct ban follows”, - he said.

According to the information the media outlet has obtained, the Russian consortium approved the attraction of bilateral and club loans to the tune of EUR 4 billion in March. One of the sources suggested that if Gazprom does not manage to lift the freeze off its asses, then the corporation is unlikely to execute the loan program on the international market to a full extent.

It is also suggested that Gazprom intended to obtain close to $6.6 through borrowing overseas.

A source in a Russian bank told Reuters that in June, before the assets were frozen in London, Gazprom had cancelled the allocation of Eurobonds nominated in pound sterling as the situation was distracted by the tense political situation between Russia and the West and the increased tension in relations with the United Kingdom. In the meantime, two other sources believe the acceleration of the litigation against Naftogaz-Ukraine as one of the main factors affecting the deal.

One of the sources told journalists of the outlet that Gazprom had intended Eurobonds nominated in euro and Japanes yen for autumn, but those are now questionable. As an option, the company may ask the court to consider the deposit for the amount of the Stockholm ruling and to resume the borrowing program.

"If the parties approach the settlement procedure in a formal manner, which means waiting for an appeal or a new arbitration, the situation may be halted – for a year, for two years, maybe even more", - the director for the natural resources of Fitch, a ratings agency, Dmytro Marinchenko said.

Gazprom needs to pay back some $15.2 billion in foreign debt this year. It makes economic sense for the corporation to borrow overseas – the local market is smaller and, thus, Russian rubles become more expensive.

"All of the evidence suggests that Naftogaz-Ukraine has managed to find a blind spot in the Russian consortium: Gazprom is largely dependent on external financing. For Kyiv that means stronger bargaining power”, - Marichenko says.

However, Gazprom is unlikely to encounter any issues with the refinancing of the debt and with the funding for its investment program in the near future, as the corporation operates with high liquidity and is able to borrow from Russian banks, the material citing data from analysts.

As of the end of March 2018, Gazprom had a cushion of $26 billion, according to Aleksey Bulgakov, an analyst at Sberbank CIB.

“It is highly likely that the legal side of the issue will come to a conclusion before Gazprom actually faces any problems with refinancing” – he pointed out.

Marichenko suggeted until the year's end Gazprom will not be able to borrow based on the use of the liquidity cushion. However, the situation is unsustainable, and the company will have to enter the market nonetheless, he added.

It is reported that the majority of Gazprom's liquidity is stored in its accounts at Gazprombank – circa $16.5 billion. It is almost a quarter of all the customers’ funds the bank has, according to the bank’s report dated 31 March 2018.

At the same time, the maturity of most of the deposits made by the Gazprom group varies from “on demand” to two years.

On 28 February, the Stockholm court of arbtration ruled Gazprom to pay Naftogaz a compensation to the tune of $4.63 billion for under-shipped volumes of gas transiting through Ukraine. Gazprom was also ordered to pay the Ukrainian company $2.56 billion.

In return, Gazprom has claimed it would denounce its agreements on gas supply to Ukraine. After that, Ukraine confiscated all of the Russian corporation’s assets located in Ukraine.

As it was reported on June 8, Russian state-run gas company Gazprom addressed the Swiss court, complaining about the seizing of its assets in the Netherlands. The company plans to submit another appeal to the Dutch court.